From Bloomberg via Mining.com, October 10:
Citigroup Inc. has been buying large volumes of physical aluminum and zinc on the London Metal Exchange, in a bold metal-financing trade that’s made it one of the biggest players in the market in recent months.
The purchases mark a return of a major driver in metals from the post-financial-crisis years: too much supply in the market drives spot prices much lower than contracts for later delivery, creating opportunities for companies that can buy up metal cheaply and hold it while selling forward at a profit.
In the last few months, Citi requested delivery of about 100,000 tons of aluminum and 40,000 tons of zinc — worth over $300 million, according to people familiar with the matter. The purchases are for Citi’s own trading book and are part of a metal financing play, said the people, who asked not to be identified discussing private information.
The trade has made Citi and other financial players something of a buyer of last resort for Russian aluminum — which now makes up the bulk of LME inventories — keeping it flowing through the LME system at a time when some feared it might become unsellable.
While other banks and traders have also put on financing trades, the scale of Citi’s move has captured the attention of metals markets — for a comparison, its aluminum purchases are equal to more than half of the readily available metal left registered on the LME, and nearly all of the remaining zinc inventories. While the US lender has a large commodities business, it has traditionally been overshadowed by the likes of JPMorgan Chase & Co. and Goldman Sachs Group Inc.
As the era of cheap money comes to an end, Citi, as one of the largest US banks, has a competitive advantage as its cost of dollar financing is significantly lower than most rival banks and trading companies.
Citi has struck a rent agreement with at least one warehousing company to store metal in Taiwan’s coastal city of Kaohsiung, and intends to ship metal there from LME warehouses in Korea and Singapore...
....MUCH MORE
